Response of Accounting Department to new promotions

When an organization introduces a new promotion to a customer, should the accounting department be proactive or reactive as these promotional decisions are made, especially when the new promotional offer could impact the organization financially? How the accounting department must respond when new promotions are offered for which there is currently no promulgated accounting literature.

Solution Preview

The accounting department should be proactive in helping craft new promotional decisions because it may impact how revenue is recognized. New customer initiatives may offer services after the sale, promise upgrades at a later date, offer return privileges for an extended period of time, or be a trial offer rather than a sale. All of these may require a change to how revenue is recognized and thus impacts the organization's financial results. Non-accounting professionals are unlikely familiar with the nuances of the revenue recognition policies ...

Solution Summary

Your tutorial is 285 words and explains how customer promotions may impact revenue recognition and the accrual of promotional expenses. It argues that the accounting department should be part of the decision process to avoid nasty surprises when the arrangement changes profits dramatically.